ICO


resource: https://www.youtube.com/watch?v=cxgvsPCDhRY **

An initial coin offering( ICO ) is similar in concept to an initial public offering (IPO), both a process in which companies raise capital, while an ICO is an investment that gives the investor a cryptocoin, more commonly known as a coin or a token in return for investment, which is quite different to the issuance of securities as is the case in an IPO investment.

Some key characteristics of an ICO include:

  • Participation in a project, Decentralized Autonomous Organization (DAO) or an economy.
  • Coin ICOs generally sell participation in an economy, while token ICOs sell a right of ownership or royalties to a project or DAO.
  • Owning tokens do not always give the investor a right to vote on the direction of a project or DAO, with the rights of the investor embedded within the structure of the ICO, though generally the investor will have input throughout a project lifespan.

The majority of ICOs involve the creation of a defined number of coins or tokens prior to sale.

  • ICO prices are usually established by the creators of the economy, project or DAO.
  • ICOs may have multiple rounds of fund raising, with coins or tokens on offer, increasing in value until the release date, with early investors likely to have greater rewards embedded within their tokens as an incentive.
  • ICOs conclude once the coins or tokens are tradable in the open market.


If we were to compare the key features of ICOs and IPOs, some of the similarities and differences would be as follows:

  • An IPO gives you ownership of the company based on the number of shares acquired, whilst an ICO may only give you rights of a particular project, not the company launching the project.
  • Decision making in IPO companies are centralized with the CEO and the board involved in the day to day running of the business, whilst with ICO companies/projects, decision making is decentralized, giving the investor a material decision making position.
  • Financial data is released as per the rules of the exchange on which the IPO took place, whilst for ICOs, these will either be public by way of the blockchain or as outlined within the white paper and agreement with the investors.
  • Companies launched by way of an IPO must pay taxes, with investors having to pay capital gains tax, whilst for ICOs, the company may not be subject to direct tax, only the investor being required to pay capital gains tax.
  • An IPO is a onetime sale with multiple intermediaries involved in the process of determining the conditions, pricing, etc., whilst ICOs can have multiple rounds of fund raising, with few if any intermediaries, the white paper the blueprint.
  • And finally, stock exchanges and companies listed by IPO are heavily regulated, whilst the exchanges on which ICOs are launched are quite the opposite.


For companies raising capital through ICOs, the advantages include:

  • The project, DAO or economy is not necessarily subject to direct taxation, which in contrast to companies fund raising through IPOs.
  • Sales of coins or tokens are direct, including multiple rounds, with few if any intermediaries required in the process, investors basing investment decisions on the content of white papers prepared by the fund raising entity.

While ICOs are to mainly raise capital for a start up, they are also used to kick-start the sale of a service to be taken to market or the use of a new cryptocurrency.

resource: https://www.fxempire.com/education/article/ico-initial-coin-offering-work-418446

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